LICENCE APPEAL TRIBUNAL
Safety, Licensing Appeals and Standards
Tribunals Ontario
Tribunal File Number: 16-000344/AABS
In the matter of an Application for Dispute Resolution pursuant to subsection 280(2) of the Insurance Act, RSO 1990, c I.8., in relation to statutory accident benefits.
Between:
R.M.
Applicant
and
Optimum Insurance Company
Respondent
DECISION
Adjudicator: Catherine Bickley
For Applicant: Brian J.E. Brock, counsel
For Respondent: George Wray, counsel
Held in writing: September 12, 2016
OVERVIEW
The Applicant, R. M., was catastrophically injured in an automobile accident on March 27, 2008. He applied for and received benefits under the Statutory Accident Benefits Schedule – Accidents On or After November 1, 1996 (“Schedule”), including Income Replacement Benefits (“IRBs”).
In March 2014, the Applicant advised Optimum (“the Respondent”) that his initial IRB rate should have been $619.50 rather than $552.78. In a report dated December 11, 2016, the Respondent’s accountant, Elaine Vegotsky of E.V. Litigation & Financial Services Inc. (“EV”), agreed that $619.50 was the correct amount and calculated that the Applicant was owed $15,003.56. The Respondent paid that amount to the Applicant on December 22, 2014.
The Respondent did not pay the Applicant interest on the $15,003.56.
The Applicant takes the position that interest is owed in the amount of $28,291.89.
ISSUES
Is the Applicant entitled to interest payments on Income Replacement Benefits that were miscalculated from April 3, 2008 to December 31, 2014? If so, what is the appropriate amount of interest?
Is the Applicant entitled to an award pursuant to Regulation 664 (10) because the Respondent unreasonably withheld or delayed the payment of benefits?
Is the Applicant entitled to an award of costs?
RESULT
The Applicant is entitled to interest payments on Income Replacement Benefits that were miscalculated between April 3, 2008 and December 22, 2014. If the Respondent takes issue with the amount of interest set out in the MDD Report, it shall make submissions to that effect within seven days of the release of this decision.
The circumstances of this case do not warrant a (special) award.
The Respondent’s conduct in this proceeding does not warrant an award of costs.
THE EVIDENCE
The parties agree that at the time of the March 27, 2008 accident, the Applicant was both employed and self-employed. In August 2008, EV based its calculation of IRB entitlement on the Applicant’s earnings for the last fiscal year (to December 31, 2007). This resulted in an IRB entitlement of $552.78. When EV recalculated the IRB entitlement in December 2014 the calculation was based on earnings for the 52 weeks prior to the accident (to March 27, 2008), resulting in an IRB entitlement of $619.50.
The significance of this differential is that although the Applicant was originally paid the maximum policy limit of $400 IRBs per week, this amount decreased significantly over time due to the impact of Canada Pension Plan (“CPP”) and Long Term Disability (“LTD”) payments received by the Applicant. A higher initial IRB rate would have resulted in the Applicant having a higher IRB entitlement after the deduction of CPP and LTD payments.
When the Applicant`s 2008 Income Tax Return was eventually prepared, he was not involved in its preparation due to his accident related injuries. As a result his self- employment income for 2008 was not included at that time. In 2014, during the parties’ discussions about the possible initial miscalculation of the IRB rate, the Applicant submitted a T1 Adjustment Request to Revenue Canada and received a Notice of Reassessment, both of which were provided to the Respondent in the fall of 2014.
The Parties’ Positions
It is the Applicant`s position that records of both his employment and self-employment earnings were provided to the Respondent in 2008 and that those records were accepted and relied upon by EV in August 2008 and in subsequent reports. The Applicant further submits that the correction of the miscalculation by EV in December 2014 was based on the same documents that it had reviewed and accepted in the past.
Further, at the time of the August 2008 calculation of his IRBs the Applicant was not required to have reported his self-employment income for the early part of 2008 to Revenue Canada. Thus, it was not unreported income pursuant to section 64.1 of the Schedule.
The Applicant submits that the payment of interest in the instant circumstances is mandatory pursuant to s.46 of the Schedule. An amount of $15,003.56 was overdue. Thus interest must be paid on that amount.
The Respondent takes the position that no amount was due at the time of the August 2008 IRB entitlement calculation because the Applicant`s self-employment income earned from January 1, 2008 to March 27, 2008 was not then verified on a tax return. Indeed, that self-employment income was not reported to the Canada Revenue Agency until 2014. The Respondent relies on Section 64 of the Schedule which provides that unreported income is not to be considered in determining pre-accident income.
In the Respondent`s submission, the differential of $15,003.56 did not become due until after the Applicant had revised his 2008 income tax filings in 2014 and provided that information to the Respondent. In summary, no amount for past IRBs was due and thus no interest accrued.
ANALYSIS
A. Interest
- s.46 (2) of the Schedule provides:
If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount for each day the amount is overdue from the date the amount became overdue at the rate of 2 per cent per month compounded monthly.
As noted above, the parties agree that at the time of the March 27, 2008 accident, the Applicant was both employed and self-employed. Where they differ is whether in August 2008 the Respondent had sufficient information about the Applicant
s self-employment income from January 1 to March 27, 2008 to calculate the Applicants IRB entitlement on the basis of the Applicant`s earnings for the 52 weeks prior to the accident. They also disagree as to the application of s.64.1 of the Schedule to the circumstances of this case.The crux of the Applicant’s position is that EV had the necessary information at the time of EV`s August 7, 2008 report. I find on the evidence that EV did have the necessary information in August 2008. The following evidence supports this finding.
a. EV’s August 7, 2008 report includes a section entitled “Scope of our report”. Items 8 and 9 in that section are:
i. 8. Cheques from Golden Griddle to [R. and C. M.], September 14, 2007 to April 15, 2008, and supporting documentation.
ii. 9. Handwritten summary of “R`s Income” 2007 and 2008.
The same items are listed as part of the scope of EV’s September 29, 2008 and August 7, 2013 reports.
The Respondent submits that “insufficient information and documentation was provided with respect to [the Applicant’s] income earned in 2008, and so no calculation could be made with respect to his income earned in the 52 weeks prior to the accident”.
In my view, Items 8 and 9 referred to in the August 7, 2008 report provide sufficient information for EV to have calculated the Applicant’s initial IRB entitlement on the basis of the 52 weeks prior to the accident. In particular, the “Handwritten summary of “R`s Income” 2007 and 2008” which is titled “[RM] – Net Income – Self Employment” provides specific details and totals of 2007 and 2008 self-employed income. It itemizes ten payments for 2007 and provides a total for 2007. It also itemizes eleven payments in January and March 2008, provides totals for “Net Income 29 Weeks to Mar 27/08”, lists “Average Net Inc” and “Gross Income 29 weeks”. This information, combined with the information EV had about the Applicant’s employed income, could have formed the basis for a calculation of IRB entitlement based on the 52 weeks prior to the accident.
The Respondent also relies on section 64.1 of the Schedule. The relevant portions of that section provide that, if a person is required to report his or her income under the Income Tax Act (Canada) or similar legislation, their income before an accident “shall be determined for the purposes of this Regulation without reference to any income the person has failed to report contrary to that Act or legislation.”
The Respondent submits that because the Applicant did not in 2008 file a 2008 Income Tax Return, there was no amount owing for past IRBs. It takes the position that until the Applicant provided the necessary documentation and reported his 2008 self-employment income to Revenue Canada in 2014, that income could not be included in EV’s calculations and so no interest accrued.
The difficulty with this argument is that at the time of the IRB calculations in August 2008, the Applicant`s 2008 tax return was not due and would not become due until the following April. Thus it is difficult to see how in August 2008 any income earned by the Applicant in 2008 prior to the accident could fall within section 64 of the Schedule. Given that no Income Tax Return was required to be filed at that time the 2008 self-employed earnings could not be considered “income the person has failed to report contrary to the Act or legislation.”
It would have been prudent for the Respondent to calculate the initial IRB entitlement using the information it had in August 2008. If it subsequently had any concern about whether the Applicant`s self-employment income had been properly reported to Revenue Canada, it could, after April 2009 have then made inquiries and recalculated the IRB rate in accordance with the result of those inquiries.
For all of these reasons, I find that the initial IRB rate calculation could have and should have been done on the basis of the Applicant’s earnings for the 52 weeks prior to the accident. The differential resulting from the miscalculation in 2008 is thus overdue and section 46 of the Schedule requires that interest be paid on that overdue amount.
B. Amount of Interest Owing
The Applicant submitted a report dated August 29, 2016 from forensic accountants Matson, Driscoll & Damico Ltd. (“the MDD Report”) calculating the amount of interest owing. The calculation covered the period from August 7, 2008 (the date of the Respondent
s determination of the Applicants initial IRB entitlement) to September 12, 2016 (the date of this hearing) and took into account the lump sum payment on December 22, 2014 of $15,003.56. Interest was calculated in accordance with s. 46(2) of the relevant SABS at 2.00 per cent compounded monthly. The resulting total is $28,291.89.The MDD Report was submitted by the Applicant as part of his Reply materials. As a result, the Respondent has had no opportunity to review and comment on this report and its conclusions. If the Respondent takes issue with the amount of interest set out in the MDD Report, it shall make submissions to that effect within seven days of the release of this decision.
Having found that the Applicant is entitled to interest on the differential, I now consider whether a (special) award1 and/or an award of costs is appropriate.
C. Special Award
Awards for late payment are governed by Ontario Regulation 664 (10), which gives the LAT the discretion, if it finds that an insurer has unreasonably withheld or delayed payments, to award a lump sum of up to 50 per cent of the amount to which the insured is entitled plus interest.
The Applicant relies on three factors in its claim for an award on the interest owing. First, EV had the information necessary in August 2008 to do the calculations that JV ultimately did in December 2014. Second, when the Respondent was advised of the IRB differential in March 2014, it relied on the fact that the self-employment income was not claimed on the Applicant
s 2008 Tax Return although the Respondents accountant had had the necessary information in August 2008 when calculating the entitlement and the 2008 Tax Return was not due until April 30, 2009. Third, a scheduled Financial Services Commission of Ontario (“FSCO”) mediation did not take place in May 2016 because the Respondent did not confirm the mediation within FSCO`s timelines.The Respondent did not address the request for an award in its Responding Submissions.
An award may be made if the LAT finds that an insurer has unreasonably withheld or delayed payments. I do not find that the Respondent has done so in this case. It is established that a miscalculation was made in August 2008. However, the Applicant did not object to that calculation in August 2008 or at any time up until March 2014. Both the Applicant and the Respondent proceeded over the intervening five and a half years as if the original IRB calculation was correct.
I have found that the Applicant
s 2008 self-employment income was not unreported income (within the meaning of s.64.1 of the Schedule) in August 2008 given that the Applicants 2008 Income Tax Return would not be due until April 2009. It was not, however, unreasonable in 2014 for the Respondent to seek to assure itself that the 2008 self-employment income had been reported. Once the Respondent was in possession of the 2008 Notice of Assessment, it moved forward in a reasonable time to recalculate and pay the amounts owing.Finally, the cancellation of a FSCO mediation did not likely result in a significant delay in the determination of this issue.
For all these reasons, I conclude that an award would not be appropriate in this case.
D. Costs
- The Applicant also seeks costs. The LAT has jurisdiction under section 19.1 of its Rules to award costs when a party’s conduct in a proceeding has been unreasonable, frivolous, vexatious or in bad faith. The Applicant has not pointed to any specific conduct in the course of this proceeding which would lead to an order of costs. Indeed, the Applicant did not make any submissions on the issue of costs. A bare request for costs without pointing to any conduct that could bring a party’s behaviour within section 19.1 must fail.
Decision
The Applicant is entitled to interest payments on IRBs that were miscalculated between April 3, 2008 and December 22, 2014. If the Respondent takes issue with the amount of interest set out in the MDD Report, it shall make submissions to that effect within seven days of the release of this decision.
The circumstances of this case do not warrant an award under s. 10 of O/Reg 664.
The Respondent’s conduct in this proceeding does not warrant an award of costs.
Catherine Bickley,
Adjudicator